Mutual Funds

Mutual Funds: Are you planning to invest in Mutual Funds? Then here, we will provide you basic information about Mutual Funds such as what are Mutual Funds? Benefits and Drawbacks of Mutual Funds and How to invest in Mutual Funds?

What are Mutual Funds?

Mutual Fund is a fund of the money which is put together by Investors on their behalf. All the money is collected together by a fund which is managed collectively in order to earn the highest possible refunds. You generally invest in the mutual funds in order in order to make your invested money grow its value.

In order words, Mutual funds can also be called as an ideal investment vehicle for all the efficient investors who don’t know much about the investing. All the Investors can select fund depending on their financial goal and simply start investing in order to achieve the goal.

Mutual Funds are shared among a numerous number of people. All the people who invest in the funds are called investors. The main person who manages the investment vehicle is called the professional fund manager. The fund manager helps you to invest in various funds based on the requirement.

Major Benefits of Investing in Mutual Funds

Smart Money Management

A Mutual Fund Company hires a team of professional to manage the money which is invested in their funds. The Fund manager and his team are always ready to provide information about various things such as when and where to invest the money, in which stocks to invest the money, or to invest in debt papers or just to keep the money in cash.

Convenience

Earlier we have to visit the fund manager to invest in mutual funds. But now, due to technology, you will be able to invest in Mutual Funds Online within few minutes. Also, now you don’t need to sign any of the documents or cheque leaves in order to invest in fund anymore.

Diversification

At the time of investing in mutual funds, you will be able to invest in various stocks and papers for a small amount. However, in order to invest in direct stock investments, you will require a large amount of money to invest in various sectors & companies. In the current scenario, you will be able to achieve diversification by investing a small amount of Rs 500 also. Due to this, if one company or sector is not performing well, it will not have any effect on your other investments. Hence, diversification allows you to handle risk.

Low Cost

All the Mutual fund companies charge a minimum amount to manage your money. This fee is known as fund’s expense ratio. The annual fund’s expense ratio is usually 2.5%. Most of the mutual funds have an expense ratio of 0.5% to 1.5%. While here, direct funds have very less expense ratio as compared to regular fund. For direct funds, you don’t require to pay management fund separately, it will be directly deducted from your investment.

Systematic investments

A Systematic Investment Plan (SIP) is one of the major benefits of mutual funds. In SIP, you have to invest a sum amount of money every month on a specific date. Due to this, you will be able to invest in various different levels equity markets. Hence you don’t have to worry about when I need to invest.

Flexibility

Other than all the tax-saving funds, no other mutual funds have a lock-in period. All the mutual fund’s investments are fully flexible. In mutual funds, you can invest whenever you want, redeem it anytime, pause the investment or even pause the investment. Also, you can stop investment in one fund and start investing in another fund which is relevant to you. Moreover, all the ELSS fund have a lock-in period of just 3 years.

Liquidity

All the Mutual fund investment is liquid investments. Here, you can redeem your money from all the investments, no questions will be asked. Also here, you don’t need to give any reason to redeem the money. All you need to do is request the mutual fund company and the money will be deposited in your bank within few days.

What are the risks involved in mutual funds?

Mutual Funds mainly invest in various stocks or securities based on the fund’s main objectives. That’ why, different funds have different risks involved with them. The investment value may decline due to any economic changes or changes due to any other event. Besides this, Government can also come up with new rules which can affect the industry. All of these risks facts are been attached to mutual funds.

Risk and Reward: Due to Diversification, mutual funds helps us to handle the risk that from some securities along with the gain in other securities. However, this will limit the gain which is obtained by holding a particular security.

Lack of Control: Investors are not able to determine the exact combination of fund’s portfolio at a particular time, also no one can provide perfect guidance which securities a fund manager buys.

How to invest in Mutual Funds?

There are two ways by which you can invest in Mutual Funds. One is by yourself and other is by with the help of a Mutual Fund Advisor.

If you are investing directly, you have to invest in the direct plan of a mutual fund scheme. However, if you are investing with the help of an advisor you will have to invest regular plan of mutual fund scheme.

If you want to invest directly, you have to visit the official websites of a mutual fund or any of the authorized branches of the Mutual Funds. One of the advantages of this is, you don’t need to pay any commission to the company and also you will gain more profit in the long term. But, if you are investing with the advice of a Fund manager, you have to pay a certain amount of commission.

One of the main drawbacks of direct investing is, you have to research about all the mutual fund, complete all the formalities and monitor all the changes by yourself.

We hope that you g a t basic understanding about the Mutual Funds. If you like this article, then please share it with your family and friends.